As retirement approaches, many wonder whether their savings are sufficient. One hypothetical scenario involves retiring at 60 with a $500,000 401(k) while working part-time. Assessing this plan’s feasibility requires understanding retirement savings recommendations, part-time earnings, Social Security and the monthly income a 401(k) can generate.
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Retirement Savings Recommendations
According to Fidelity Investments, people should aim to save at least one times their salary by age 30, three times by 40, six times by 50, eight times by 60, and 10 times by 67 to maintain their preretirement lifestyle. Another method, the Rule of 25, suggests determining the total retirement savings target by multiplying annual withdrawal needs by 25.
Monthly Income From A $500,000 401(k)
A $500,000 401(k) can generate different amounts of monthly income, depending on withdrawal strategies and market conditions. If following the commonly used 4% rule, it would provide an annual income of $20,000, or approximately $1,667 per month. This is under the assumption that the total amount lasts for at least 25 years.
Average Retirement Income
Data from the 2022 Current Population Survey Annual Social and Economic Supplement (CPS ASEC) shows that the average retirement income for U.S. adults 65 and older is $75,254 annually, translating to about $6,271 per month. However, the median income for this age group is lower, at $47,620 annually.
Based on these figures, the income from a $500,000 401(k) alone might be insufficient for many retirees, especially if their goal is to achieve a retirement income close to the median or average figures.
Part-Time Work Income
Income from part-time work varies based on industry, location and hours. For example, a part-time job yielding $15,000 annually could supplement the 401(k) income but might not fully bridge the savings gap.
Social Security Benefits
In considering early retirement at 60, it’s crucial to note that Social Security benefits are not available at this age. Eligibility for these benefits begins at 62, with the option to delay for higher monthly payments. Medicare health benefits are not available until age 65.
Even at full retirement age, the estimated average monthly Social Security retirement benefit as of January 2024 is $1,907. When planning for early retirement, this delay in receiving Social Security benefits must be factored into financial calculations. At 60, without access to these benefits, people must rely solely on part-time wages and monthly withdrawals from their 401(k).
Once eligible for Social Security at 62 or later, these benefits can significantly supplement part-time income and 401(k) distributions, potentially enhancing overall financial stability during retirement.
Tips For Enhancing Retirement Income
Diversify investments: Explore other investments like individual retirement accounts (IRAs), stocks, bonds, mutual funds or real estate for additional income streams.
Reduce expenses: Consider downsizing, budgeting and cutting nonessential expenses to make savings last longer.
Consult a financial adviser: Seek professional guidance to develop a personalized retirement strategy.
Consider annuities: Research annuities for a potential steady income stream while understanding their terms and conditions.
Healthcare planning: Factor in healthcare costs and explore options like Medicare, supplemental insurance and health savings accounts.
Lifelong learning: Stay informed about financial planning, market trends and new investment opportunities.
Emergency fund: Maintain an emergency fund to cover unexpected expenses without dipping into retirement savings.
Passive income sources: Look into opportunities for generating passive income, such as rental properties or dividends from investments.
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*This information is not financial advice, and personalized guidance from a financial adviser is recommended for making well-informed decisions.
Jeannine Mancini has written about personal finance and investment for the past 13 years in a variety of publications including Zacks, The Nest and eHow. She is not a licensed financial adviser, and the content herein is for information purposes only and is not, and does not constitute or intend to constitute, investment advice or any investment service. While Mancini believes that the information contained herein is reliable and derived from reliable sources, there is no representation, warranty or undertaking, stated or implied, as to the accuracy or completeness of the information.
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This article If Someone Has A $500,000 401(k) And Plans To Work Part-Time, Can They Afford To Retire At 60? originally appeared on Benzinga.com
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